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Red Alert on the Red Metal?
At the end of last year I made predictions (a total of 44) of what might come. So far I’ve got (at least) one right and other dead wrong. I’m worried about the one I'm wrong on.
Right
-Volatility is going up across the board. If you have the stomach for the swings that are coming across all markets there is a ton of money to be made; balls and timing are all that are necessary. The markets will create dozens of opportunities to make and lose.
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Wrong
-Copper will continue to rise. This metal will benefit as the poor man’s gold. Why buy an ounce of something for $1,600 when you can have a whole pound of something else for only $5? The logic is compelling only because there is no logic.
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Copper is looking very stinky on the charts.
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Does it matter if copper breaks down? In the normal course of things I would say no. The demand side is slipping on a global basis; there’s plenty of metal around, so lower prices are not much of a surprise. But there is a wild card on copper this time around. I’m wondering if the crap out in copper is going to bring indigestion to China.
Entities in China have been using copper warehouse stocks as collateral for financing all manner of things for the past two years (L/C backed financing). The estimates for how much has been done of this are not clear. The range is from $7-10 billion.
That China Inc. has been borrowing using copper collateralized debt is an old story. The following links discuss this in depth.
FTAlphaville – Why the Chinese copper financing scheme is a big deal
WSJ - China's Doctored Copper Demand
FTAlphaville - Simply amazing commodity collateral shenanigans in China
Credit Writedowns - The debt-financed investments of Chinese state-owned enterprises
The Telegraph - A 'Copper Standard' for the world's currency system?
Business Insider – Credit-Mad Chinese Companies Are Hoarding Copper In A Ponzi Scheme For New Loans
Zero Hedge – Copper: More Than China's Property Market
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This FTA story ended with this observation:
But, if prices fall seriously beyond the face value of their loan exposure — the risk of LCs being thrown into sudden and immediate ‘non-payment danger’ rises exponentially.
I think we have to be pretty close to where the rubber meets this road. One thing for sure, those lenders (and borrowers) who have relied on this scheme in the past will find the door closed for new financings today. There is a growing risk that some of the underlying debt will not be money good, and the copper inventory will have to get sold.
Should this get rolling we will see it in the print. The (so far) orderly retreat in copper will accelerate. Don’t read this and conclude that I’m recommending a short in copper. What I’m suggesting is that one watch the copper price as a leading indicator of a funding problem in China. One breakdown may lead to another.
China Inc. could solve the problem in an hour or two. They could offer to buy all the excess metal at $4.50 a pound. But that would be a bailout of state owned lenders. That would be a slippery slope that would lead to more bailouts of an already over levered system. Either way, the availability of credit would dry up under these conditions.
What the world economy (and the equity markets) doesn’t want to hear about right now is a hiccup in China that ratchets growth down another notch. We might just get that.
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maybe not, but it is a great & fun way to teach kids (especially those from poorer bckgrnds) about the difference between paper money & material wealth.
get them collecting nickels instead of chasing dolla dolla bills y'all.
Sheesh. You guys must be a buncha prudes. Dollar Bills have *tremendous* value. Can't get a stripper to take her top off by stickin' a nickel in there...
Now that is a great idea.
Of all the metals to start actually manufacturing into itty bits of coins that would actually be considered money, copper seems like a good one worth exchanging - Gold is too expensive per volume
you sound like one of those "there is not enough gold!" people (answer, at what price?)...ever heard of Taels?
That's a great idea, let's call them pennies.
They would have to make them with half the copper, otherwise they could make them twice as big and call them copper nickels.
ha!
LMFAO!
Good post. And that was a stinker of a projection. Copper is not a precious metal, and it's not about to become one. It's a play on fixed investment and manufacturing.
Besides, I'm not talking down silver here, but the argument that it will outperform gold because it's the "poor man's gold" is a weak one. India is a poor country, do you see them switching to silver? If you have enough money to save anything, you can surely afford an ounce of gold. There are some reasons silver might outperform, but "poor man's gold" isn't one of them.
"Copper is not a precious metal, and it's not about to become one."
Is silver really a byproduct of copper mining? If so, does anyone here think that may be the correlation between overproduction of copper when demand is low (but silver demand is high)?
agreed, "poor man's gold" is just empty words the MSM puts in stories about PMs, as filler, it has no real meaning.
$1000 of gold is $1000 of gold
$1000 of silver is $1000 of silver
the object is not to buy the largest amount of mass, if you want to do that then just buy steel.
still, silver will probably outperform gold long term.
I'll confirm that Silver is the BIG momentum gainer in india. LAst couple of day's action might have put a little damper because a lot of action came on after Silver was comfortably north of $35.
Nonetheless, lot's of new silver investors here. Classic tell is headlines mentioning price of Ag And Au in the same breath. 6-8 months ago, Silver was still the poor cousin.
Definitely seems like Silver's time in the night is coming, and it's a long night ahead, make no mistake about that.
ORI
Uppers and Downers
Patience, patience, patience. Take the long view of history. Buying real things when everybody else is selling isn't an advantage in the short term. The horseplayer mentality of the commidities markets has no tolerance for the old fashioned investment principles. People want the big parley to come through for them. A sane man doesn't put himself in a position to drop dead, if he doesn't hit the Big One in the next race. Copper will have it's day. It just isn't as soon as investors would like. One thing you can be sure of, in this case. Having is better than wanting. I hope "The Four Money Questions" helps cut through the confusion.
http://georgesblogforum.wordpress.com/2011/09/16/the-four-money-questions-update-09-162011/
One must understand that the fiat, or government dictated (not market dicted..anymore) prices of metals is illegitimate, and in many ways now insignificant.
The faith based government dictatorship in dollar terms that says a metal is worth a certain price is the same government with a political system in shambles. It is the same government that is many trillions in debt, subject to massive corruption and parasitic consumption by corporate and banking entities, and is targeted by the elite for eventual collapse.
The instituions are cracked, and exposed. Education. State. Currency. Religion. All faith based, all in some state of collapse.
All this with the dark winged planet coming right at us. Ever wonder why the government is spending like drunken sailors? Maybe because there IS no consequence, because we could catastrophic events very, very soon.
"The future is uncertain, and the end is always near."
- The Doors
Compiling knowledge gathered from ZH and other sources I can only say:
1) Do not forget that copper inventory is relatively small to copper annual use.
2) China, JPM and GS are also stacking so much as they can. Just think in other direction: if someone is stacking it up, it must have some long term value for them.
3) Does any fundamentals any meaning in rigged economy? Just do what GS do and do opposite what GS customers are advised to do. GS and JPM are stacking row materials.
this is the dr. copper that robotrader talked about as the economic bellwether. where are robo and all his fantasy friends?
If RoboTrader said it, its got to be fucked!
Thanks for the information. I have a friend in Oregon that has a lot of physical copper. I am going to email him this so that he is aware. Keep up the excellent information system Bruce.
You might suggest to your friend that he build a rental unit using his copper as the building material on all interior walls, rent it out to a dependable person like a family member, and then start depreciating it.
this is so well thought out that you did this didnt you ? What size and thickness did you use and what did a sheet retail for ?
Yes I did do it years ago. Made the copper ingots into a solar thermal heat sink wall. Just stacked them like bricks and stabilized the wall with 4x4 timber framing. Paid for the stash with depreciation 100%. Now if only I had used silver when it was a couple of bucks a pound I would be really happy. As it is I have a lot of paid-for copper and the thermal sink is still working like a charm..
@americanspirit--im trying to visualize what you mean. exactly what is a thermal heat sink wall? is there a certain direction it should be facing? (East, north, etc) should it be an interior wall, or one that has outside exposure? insulation needed? sorry for the questions, but brilliant idea!!! putting a great investment to use!!!
Basically, you have a window with an awning or roof overhang above it. In the summer, the sun is high up in the sky, and the awning keeps the sun from hitting the window. In the winter, the sun is lower in the sky, and the sun shines through the window. Inside the window, where the sun is shining in the winter, you stack your heat sink. Ta da! Each winter day, the sun heats up the heat sink, and then, each winter night, the heat sink pours all that stored thermal energy back into the room. (Correct me, anyone, if I am err in any of this.)
(This is, of course, a type of solar energy that is also low-tech and is "passive".)
(The other often-used type of "passive" solar energy is water-heating, with the black pipes set out in the sun and then connected to your hot water heater. That way, your hot water heater is receiving water that is already pretty hot, instead of cold water from the city pipes under the ground. So the hot water heater only has to heat the water a little bit more, or, during days of strong sunlight, maybe not any at all. Since a major user of electricity in many homes is the hot water heater, this can help your budget.)
Hi Kito - please see my comment to NotApplicable just below. Look on Amazon for a book on passive solar design that appeals to you - there are dozens. Also quite a lot of great info on the web - just search for 'passive solar home design" People have been incorporating thermal sinks into passive solar homes & greenhouses for decades - the first time I ran across it was a friend in New Mexico in the 70's who stacked a number of 55 gallon drums filled with water and painted black in his greenhouse. He was growing - um - some valuable plants and didn'tt want a big electricity bill to raise any little red flags. During the day the water in the barrels soaked up heat ( which he vented if he didn't want what radiated off them as they heated up) and at night they gave off plenty of warmth to keep his plants happy. Worked beautifully even on cloudy days - not too many of those in NM - but you get the idea. My only contribution was to realize that if you did the same thing with a rental house using a metal that had some potential future value you could depreciate it along with the rest of the house - it's just building materials after all. Just make sure that the wall of copper - or whatever - isn't a load bearing wall so that after it's fully depreciated you can pull it out and sell it when the time comes.
genius idea mate. what is it like in the summer though?
If done right, it will not be exposed to the summer sun, and it will help keep the house cool since the thermal mass aids in retaining room temperature (whatever it may be).
It's the same logic as keeping jugs of water in a frig instead of leaving it empty, as the water both stores energy and displaces air, saving electricity.
Hi NA - could not have said it better myself. In addition to positioning there are other options such as using reflective mylar to block solar gain in the summer, venting etc. And you're absolutely correct that it soaks up the cold at night and helps keep the house cool during the day. My house is built from rock and the whole structure cycles, staying cool through most of the day and then heating up a bit to give off heat at night when it is cooler outside. Take a look at any of the good passive solar home designs that use thermal sinks and you'll get all the design info you need.
awesome, thanks for the info americaspirit
Tks for the explanation.
bk
JPig is toast on both the silver and copper front.
Time to send that impudent strumpet -Blythe- to the guillotine.
I keep hoping the JPig will store phys plutonium at the home office.
Cobalt 60 would be the ideal metal for the Morgue to store. Perhaps a pound of so in each exec's desk would suffice. After all, with transportation and storage costs as high as they are, it would be prudent for them to keep a close eye on it.
Mmmm. Shiny. But not as shiny as gold.
Seriously, though, if China will experience a crash if copper drops in price, I suspect the Chinses authorities will bid the price up with all those depreciating USDs they've got salted away.
I personally would rather hold copper than fiat.
Add to this the dropping demand as people worldwide are buying less stuff like cars and appliances, and building fewer buildings...
I think there is a pretty compelling case to short copper (disclosure: I am short copper).
The West is aging fast, they won't buy your copper. They have all the consumer items they need, and don't even need the family house anymore.
The housing glut is not going anywhere soon so you can forget about a demand for copper from the housing industry. Even if they bulldoze the extra inventory, do you suppose they are going to throw away the copper taken from these unwanted houses, or are they going to throw the recycled copper right back on the market?
Copper is just as good as any other physical thing to store value in during a fiat implosion, but demand destruction makes it a short for many years to come. (commodities do experience bear markets for years)
Copper cannot be ramped to the sky. It is too critical to too many industries. Copper will always be swimming against this current. Now gold, that could go to $50k an ounce and not wipe out whole industries. Nobody would object but the Lords of Fiat. However, if they were hoarding gold and fiat's days were numbered...hmmm?
smiddy, the more i read your stuff the more i think that deflation is the end-around this entire clusterfuck, with the metals eventually settling more or less at their historical equilibriums in relation to other real goods (and thus redefining themselves as currency).
I don't even know.. do they use copper/brass in artillery shells anymore ?
O thank god we still make something here. Hey can you eat any of those?
"Hey can you eat any of those?"
Yes - but it is a convoluted process. You need to take a copper alloy (brass) and form it into a vessel, which is then filled with a propellant and fitted with a lead projectile. Once properly ignited with a device pressed into the bottom of the brass vessel, the lead projectile expends it's energy into a meat-filled container, which is then disassembled and cured or dried for later consumption. It takes practice, but luckily I started young and have become quite proficient in my waning years.
I know of some who are not willing to complete the process as designed, and only plan to use the projectile expulsion part of the process to forcibly take the processed resultant from the rightful owner. Unfortunately, they must have forgotten the part about how the product was obtained in the first place. Even a meat container with a projectile emitter can be processed for use to feed canines.
Nothing wasted...
Nice work IAS!
+1 12 point meat container
Yes, they do. I should make this clear; you can buy the CME copper contract right now, basis Dec.; the price chart shows downward exhaustion; the selling is over for now. Cheers.
http://www.gd-ots.com/2011%20Brochures/Scranton%20Products.pdf
And made in Scranton. USA! USA! USA!
I see the depleted uranium is optional, for the penny-wise but pound-foolish psychopath.